02/01/2024 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

              SB 161-TAX EXEMPTION FOR FARM USE LAND                                                                        
                                                                                                                                
1:31:52 PM                                                                                                                    
CHAIR DUNBAR announced  the consideration of SENATE  BILL NO. 161                                                               
"An  Act relating  to municipal  taxation of  farm use  land; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
[This is  the second hearing  of SB  161 in the  Senate Community                                                               
and Regional Affairs Committee.]                                                                                                
                                                                                                                                
1:32:01 PM                                                                                                                    
CHAIR DUNBAR opened public testimony on SB 161.                                                                                 
                                                                                                                                
1:32:36 PM                                                                                                                    
BEN  ADAMS, representing  self,  Soldotna,  Alaska, testified  in                                                               
support of  SB 161, stating that  he is a new  farmer and rancher                                                               
in Alaska.  Property taxes  on structures are  one of  a farmer's                                                               
biggest  expenses,  which  discourages  farming.  He  said  that,                                                               
unlike every state  he knows, Alaska has the  idea of progressive                                                               
property  taxation. He  explained  that the  more  he builds  and                                                               
farms, the  more his property  taxes increase.  He is now  at the                                                               
point where  he pays  considerably more than  anyone else  in his                                                               
neighborhood,  including those  with  more  land and  residential                                                               
structures,  all due  to farming.  He said  that in  Southcentral                                                               
Alaska,  it is  a  hugely discouraging  factor.  He said  farmers                                                               
informed him they cannot increase  production because they cannot                                                               
afford  the property  taxes on  the new  structures required  for                                                               
expansion. He said  if the state is serious  about food security,                                                               
then Alaska needs to:                                                                                                           
                                                                                                                                
- stop making minor, incremental changes,                                                                                       
                                                                                                                                
- stop with the far-flung agricultural projects, and                                                                            
                                                                                                                                
- do  something that makes  a huge  difference to the  farmers in                                                               
   Kenai and Mat-Su, like offer an exemption or a deferral for                                                                  
   structures on farms.                                                                                                         
                                                                                                                                
MR.  ADAMS compared  various forms  of taxation  on farms  around                                                               
Alaska. He said the disparity  in property taxes makes it cheaper                                                               
for  certain farms  to produce  agricultural goods.  He said  the                                                               
state's  largest  farms  are  in Delta  Junction,  and  they  pay                                                               
nothing.  Fairbanks  has a  farm  structure  exemption, which  78                                                               
percent  of  voters  approved.  He said  farms  like  his  cannot                                                               
produce  agricultural goods  cheaply due  to the  larger property                                                               
tax bills. Before he started  farming two years ago, his property                                                               
taxes were  about $1,000 yearly;  now, they are more  than $1,000                                                               
monthly. He said  it is impossible to break even,  let alone turn                                                               
a profit  or grow as a  farmer and rancher when  the property tax                                                               
bill increases every time he  builds anything. It is the opposite                                                               
of  what every  other  state  does, and  it  needs  to change  if                                                               
Alaskans seriously want food security  in the state. He urged the                                                               
legislature to fix  this before farmers give up  and go bankrupt.                                                               
He said Alaska cannot have food security under the current law.                                                                 
                                                                                                                                
1:35:47 PM                                                                                                                    
MARCUS MUELLER,  representing self,  Kenai, Alaska,  testified in                                                               
support of SB  161, stating he is a new  farmer in Homer, Alaska.                                                               
He said that he likes:                                                                                                          
                                                                                                                                
- the straightforward approach of SB 161,                                                                                       
                                                                                                                                
- that it includes farm buildings,                                                                                              
                                                                                                                                
-  that  it  includes  the  use   of  IRS  tax  form  Schedule  F                                                               
   (Form 1040) and                                                                                                              
                                                                                                                                
- the $1000 product value threshold.                                                                                            
                                                                                                                                
1:36:25 PM                                                                                                                    
MR. MUELLER said  he is starting a farm business  on 177 acres of                                                               
land, 2  miles off-road  on the  Kenai Peninsula.  He works  as a                                                               
land manager for  the Kenai Peninsula Borough during  the day. He                                                               
wrote a white paper on  agriculture in this capacity. It outlines                                                               
an   agricultural  initiative   on  the   Kenai  Peninsula   that                                                               
identifies where  the borough could  put forward as much  as four                                                               
to six  thousand acres  of land  for agricultural  production. In                                                               
the  process  of  writing  the  white paper,  he  had  a  lot  of                                                               
conversations with the farming community  and those interested in                                                               
locally grown foods in the region.  He has been involved with the                                                               
Borough Resilience and Security  Advisory Commission for the past                                                               
two years. This group of  volunteers discusses emerging issues on                                                               
the Kenai Peninsula and includes  an agricultural subcommittee. A                                                               
recurring topic of discussion is the  use of tax policy as a tool                                                               
for governments to promote agricultural growth across the state.                                                                
                                                                                                                                
1:38:44 PM                                                                                                                    
MR.  MUELLER said  that  the  role of  tax  policy is  important,                                                               
particularly  concerning agriculture.  He outlined  a finding  of                                                               
particular importance:                                                                                                          
                                                                                                                                
• The agricultural sector is a land-based industry.                                                                             
•  Land is an important part of the supply chain, as is access to                                                               
   land and the affordability of land.                                                                                          
• Agriculture competes with other sectors for land.                                                                             
•  Land  for  residential  use  has  the  advantage  of  30-year,                                                               
   capitalized upfront mortgages.                                                                                               
•  Residential-use land has  a major  infusion of  capital, which                                                               
   gives this sector a lot of purchasing power.                                                                                 
•  In contrast, capital works just the opposite for agricultural-                                                               
   use land.                                                                                                                    
•  A farmer starts with very  little capital, and the  goal is to                                                               
   make the land's soil valuable over time.                                                                                     
•  A farmer might build the operation and value  of the land over                                                               
   30 years.                                                                                                                    
•  The economic  structure  for  land  used in  the  agricultural                                                               
   sector differs greatly from other sectors.                                                                                   
•  The tax policy for  agricultural producers should  reflect the                                                               
   reality of this difference.                                                                                                  
                                                                                                                                
MR. MUELLER thanked the committee  for the opportunity to testify                                                               
and encouraged support of SB 161.                                                                                               
                                                                                                                                
1:41:12 PM                                                                                                                    
PAMELA SAMASH,  representing self,  Nenana, Alaska,  testified in                                                               
support of SB 161, aligning  with previous testimony. She said it                                                               
is critical  to support efforts to  increase food sustainability.                                                               
The pandemic  taught that  Alaska is too  dependent on  the Lower                                                               
48.  Farmers in  Alaska are  like  heroes. They  supply not  only                                                               
local food  but good-quality local  food. Happy,  healthy farmers                                                               
who  humanely raise  animals and  organic  produce means  healthy                                                               
Alaskans. SB 161 works for everybody.                                                                                           
                                                                                                                                
1:43:00 PM                                                                                                                    
CHAIR  DUNBAR agreed  that during  the pandemic,  Alaska faced  a                                                               
public crisis that  caused a lot of worry. He  mentioned the Port                                                               
of Tacoma and that Alaska needs to improve its food security.                                                                   
                                                                                                                                
1:43:21 PM                                                                                                                    
ADAM  JENSKI, representing  self,  Palmer,  Alaska, testified  in                                                               
support  of SB  161 and  answered questions.  He foraged  hay and                                                               
raised bison and cattle in the  Mat-Su Valley for about 20 years.                                                               
He has  been leaning into  horse hay to  pay bills because  it is                                                               
more profitable.  He and his wife  lease 3,000 to 4,000  acres of                                                               
property between Palmer, Sutton, and  Point MacKenzie. He said SB
 is  going in the right  direction. He stated that  taxes make                                                               
farming leased  ground more cost-effective than  buying property.                                                               
He asked  that the committee  consider allowing farmers  to defer                                                               
taxes  completely.  It   is  hard  to  find   land  suitable  for                                                               
agriculture  in   Alaska.  He  stated  that   SB  161  encourages                                                               
landowners to  keep their  land for  agricultural use  instead of                                                               
pursuing more profitable development opportunities.                                                                             
                                                                                                                                
1:45:46 PM                                                                                                                    
SENATOR OLSON asked whether the  tax structure has changed in the                                                               
Mat-Su Valley over the past 20 years.                                                                                           
                                                                                                                                
MR. JENSKI  replied, no. He started  when he was 18  and is still                                                               
filling out  the same tax  deferment application, albeit  it only                                                               
applies  to the  property  itself, not  the  structures. The  tax                                                               
deferment helped him  slow losses and hang on to  225 acres, down                                                               
from 500.  He said development  outpaces the farmer's  ability to                                                               
replace land  that is developed  for other purposes.  He foresees                                                               
this trend persisting.  Point MacKenzie has some  big tracts, and                                                               
the tax  structure helps the  land but  not the massive  barns on                                                               
the  land.  Landowners  prioritize  tenants who  can  pay  higher                                                               
prices  to  store  their  RVs   and  airplanes  to  recoup  their                                                               
investments,  rather than  renting to  farmers. He  asserted that                                                               
the current tax deferment program  fails to make these structures                                                               
affordable for agricultural purposes.                                                                                           
                                                                                                                                
1:47:16 PM                                                                                                                    
SENATOR OLSON  asked what kind  of services the  borough provides                                                               
in exchange for paid taxes.                                                                                                     
                                                                                                                                
MR. JENSKI asked if he meant road services.                                                                                     
                                                                                                                                
SENATOR OLSON replied yes, clearing  roads and services that help                                                               
farmers sustain their livelihoods.                                                                                              
                                                                                                                                
MR.  JENSKI  replied that  Point  MacKenzie  is fairly  poor.  He                                                               
expressed  frustration that  despite paying  property taxes,  the                                                               
community receives  no fire protection.  He pointed out  that two                                                               
homes were lost due to the  absence of fire services, even though                                                               
the prison in Point MacKenzie does have fire protection.                                                                        
                                                                                                                                
1:48:10 PM                                                                                                                    
SENATOR BJORKMAN asked him to  contact his office about deferment                                                               
and ways to improve the program.                                                                                                
                                                                                                                                
1:48:35 PM                                                                                                                    
CHAIR DUNBAR closed public testimony on SB 161.                                                                                 
                                                                                                                                
CHAIR DUNBAR held SB 161 in committee.